Got Student Debt? Move Fast, and Some Cities Will Help You Pay It Off

College graduates steeped in debt have an unexpected ally to combat their student loans: local governments.

But there's a hitch – they'll have to live in towns that might not boast the vitality and jobs of urban centers like Chicago and New York City.

In coming months, Niagara Falls, N.Y., will strive to lure young professionals to its languishing downtown by offering to help pay their student loans. In rural Kansas, income tax waivers and student loan repayments are being marketed to entice college graduates. And Nebraska, heeding Kansas's blueprint, may consider a similar relocation proposal in its 2012 legislative session.

The efforts are part of a small but growing trend among rural and Rust Belt cities to try to attract educated young people – a reflection of research that indicates they are often the best way to revitalize a depressed area. Since the last third to half of the 20th century, population growth in rural places has been eclipsed by urban centers, says Brett Theodos, a research associate at The Urban Institute, a nonpartisan think tank based in Washington.

"These communities are eager and desperate to attract and retain people," Mr. Theodos says. "They also don't have a lot of resources to throw at the problem, so they need to shepherd their investments wisely."

In Niagara Falls, city officials marshaled $200,000 to fund the new student loan incentive. Community development director Seth Piccirillo says the idea was born out of the realization that many college graduates nationwide are bogged down by debt – and are needed to give the town an economic make-over.

The city's once industrial-centered economy is now a shadow of its former self and its population has plummeted from 100,000 to 50,000 over 50 years. If the next census reveals any fewer residents, city leaders worry that they may lose some forms of federal assistance.

"We know that we need these young professionals in Niagara Falls to compete in the future," Mr. Piccirillo says. "At the same time, we know that these college graduates are starting off with this debt in a difficult economy. We wanted to figure out a program that would benefit both."

The result is an initiative that will guarantee $7,000 over two years to 20 graduates of any higher-education institute. Though the first batch of applications won't be released for a couple of months, Piccirillo says he's already seen interest judging from the 200-plus e-mails and phone inquiries he's received – many from Western and Southern states.

If approved for the program, applicants are required to rent an apartment or buy a home within a specific downtown area. The ultimate goal, Piccirillo says, is homeownership at the end of two years – even if for just six or seven of the newcomers.

"We're not trying to do something citywide," Piccirillo says. "We realize that resources are limited, so if you really try to do stabilization neighborhood by neighborhood, that's the wisest way in today's economy."

By contrast, the Kansas program, launched in July 2011, was designed for specific counties. Fifty are designated as Rural Opportunity Zones (ROZs), which offer Kansans income tax waivers for up to five years and/or student loan repayments of up to $15,000.